A last-gasp header from Liverpool's Sami Hyypia deep into injury-time sunk a valiant Wolves side at Anfield.
It was a cruel blow for the Midlanders who fought hard throughout and would have deserved a point so vital in their campaign to avoid relegation.
This result leaves them staring into the abyss, relying on Manchester City beating Leeds on Monday night to stop them propping up the table themselves.
But for Liverpool it was three points won which could make or break their season.
With a 3-0 victory over Portsmouth midweek, rejuvenated Liverpool finally looked like clinching the final Champions League place.
And it has been no coincidence that the Anfield side's return to form has been spurred by the new-found confidence of Michael Owen.
The England forward, desperate to build on his brace against Pompey three days earlier, again posed a threat throughout.
Wolves battled hard against an unchanged Liverpool side with guts and spirit and it was they who forced the game's first opening on five minutes.
Liverpool's defence were at sixes and sevens allowing Vio Ganea acres of room to sprint down the right and whip a cross into the box.
Kenny Miller came desperately close to connecting with a flying header before the ball dropped to Alex Rae. Wolves' top scorer could only fire his shot low into the arms of Liverpool keeper Jerzy Dudek.
It was a scrappy opening quarter but Liverpool slowly began to impose their dominance and some sharp defending from Wolves forward Henri Camara denied Danny Murphy a shot in the box.
Wolves keeper Paul Jones returned to Anfield for the first time since a brief spell on loan with the Merseysiders and he had to react quickly to deny Harry Kewell on the edge of the box on 19 minutes, after the Aussie latched on to a perfect ball from Dietmar Hamann.
Dudek was likewise tested three minutes later rushing off his line to block Ganea's shot on the edge of the box. But neither side looked like taking the lead and it took a controversial penalty appeal on 25 minutes to kick some life into the encounter.
Emile Heskey dispossessed Jody Craddock 20 yards out and hurtled towards keeper Jones. He was ready to pull the trigger when he fell under a desperate lunge from the back tracking Craddock, only for referee Rob Styles to wave play on.
Manager Houllier's thoughts on the matter were made abundantly clear when the red-faced Frenchman raced from the dugout to reprimand the stunned official.
But Wolves continued to push and harry and almost shaded the first half.
On 36 minutes a snapshot from Ganea again tested Dudek as the strikers began to find their range.
Liverpool countered on 39 minutes when Owen sprinted to the right side of the box and flashing his shot inches wide of the left-hand upright.
A minute before the interval Wolves hit back with the game's best opening.
Camara continued to unlock the defence with his lightning pace and first-time control and played in Miller, whose left-foot strike had Dudek beaten, but swerved the wrong side of the right-hand post.
The impressive Camara again unlocked the defence on 47 minutes latching on to a loose pass from Steven Gerrard before firing a low curling drive from 20 yards out which needed a sharp reaction save from Dudek to tip it round the post.
The ever combative Gerrard almost carved out an opener on 58 minutes. He played a neat one-two with Harry Kewell before unleashing a right- foot shot from the left which Paul Jones was equal to.
Liverpool eventually turned things around, bringing on Kop favourite Milan Baros for Heskey and El Hadji Diouf for Kewell on 60 minutes to bolster their flagging attack.
And the diminutive Czech Baros had an immediate impact. His superb run down the right flank forced a corner on 65 minutes and Hamann's fierce drive from the resulting free-kick was only parried when Lee Naylor caught the ball full in his face, requiring treatment from medical staff.
But Wolves were made of sterner stuff than their League position portrayed and forced openings of their own.
A snapshot from Rae on 68 minutes almost caught Dudek unawares in the swirling wind and with just quarter of an hour to go the Wanderers looked ever more likely to cling on for a point they treasured so dearly as Liverpool pushed up in waves.
On 72 minutes Wolves rode their luck when substitute Diouf rose well to meet Gerrard's cross only for his effort to be cleared off the line by Shaun Newton.
And Liverpool frustrations were compounded when two strikes from left-back John Arne Riise in quick succession could only find the roof of the net, followed by the sidenetting.
But just as the Kopites headed towards the exits three minutes into injury time Liverpool struck first blood catching Wolves with a sickening strike.
Centre-back Hyypia rose highest to put a thundering header beyond the despairing reach of Jones, sending Anfield into raptures.
It was a bitter pill to swallow for Wolves and as the team slumped away there was an ever growing sense that with nine games remaining there could be too little too late in their bid for survival.
Meanwhile for Houllier, it was sheer joy, as his side moved closer to their goal of Champions League football.
Speaking after the game, furious Dave Jones slammed Heskey, blaming him for a blatant dive in a bid to win a penalty.
He said: "It was not a penalty. He went down like a sack of spuds. If he had taken the shot he would have scored, but he waited and waited." Wolves Manager Jones conceded his side were unlucky to lose. He said: "We have no problems in open play, but gave away silly free-kicks.
"If you give a team like Liverpool opportunities you're going to suffer, but I don't think we deserved that!" Houllier, on the other hand, slammed the referee saying it was decisions like that which get managers the sack.
He said: "It was a blatant penalty. It's not my players who are going to get me the sack, it's the referee.
"He was too far away to make a decision like that is incredible. It's a good job we got the three points." Man-of-the-Match - Liverpool's midfield genius again showed why he is first choice for England as well as Liverpool with a powerful and industrious spell that saw the majority of Liverpool's play coming through him.